Silver Closes At Another 30-Year High

YESTERDAY IN GOLD AND SILVER

Wednesday's price action wasn't particularly exciting… with the gold price hovering around unchanged by the time that Far East… and most of London trading… was done… and the New York open came around. Once the London p.m. gold fix was in at 10:00 a.m. in New York, the gold price ran up a quick five bucks or so… and then did next to nothing for the rest of the day.

Silver was up about 15 cents by the time New York trading began yesterday morning… and then added about a dime after 10:00 a.m. Eastern before trading sideways into the close.

The world's reserve currency gave back almost all of its Tuesday's gains during Wednesday's trading day. Between the open in the Far East… and 11:00 a.m. in New York, the dollar slide a bit over 20 basis points. Then, at 11:00 a.m. sharp, the dollar sell-off became somewhat more serious… and by 1:15 p.m. Eastern was down another 50 basis points before recovering a hair into the New York close.

And, like Tuesday, the dramatic dollar action had no effect whatsoever on gold or silver prices.

The gold shares pretty much followed the gold price 'action'… such as it was… and the HUI closed up 0.45% on the day. As I mentioned yesterday, once the Toronto stock market opened yesterday for the first time since December 24th, the junior silver and gold companies went on a tear… especially the smaller silver companies… with gains in the 6-12% range a common sight.

The CME Delivery Report wasn't overly exciting either… as only 43 gold and 22 silver contracts were posted for delivery on Friday. JPMorgan, Bank of Nova Scotia and Deutsche Bank were front and centre as per usual. The link is here.

There were no reported changes in either GLD or SLV yesterday… and no sales report from the U.S. Mint, either.

However, over at the Comex-approved depositories, another big chunk of silver was withdrawn from their collective inventories on Tuesday. This time it was 614,039 troy ounces… and the link to that action is here.

¤ CRITICAL READS

My first story today is courtesy of reader Ken Metcalfe… and is posted over atbusinessinsider.com. The rather pithy headline reads "ROBERT SHILLER: If House Prices Keep Falling This Fast, The Economy Is Screwed". There are a few paragraphs of text, followed by a WSJ video. Back in January of 2007 I said that the U.S. real estate market would bottom sometime in 2013. That, in retrospect, may prove to have been a wildly optimistic forecast. This is worth your time… and the link is here.

CNBC has another short story on the current real estate debacle in the U.S. This one [courtesy of Florida reader Donna Badach] is headlined "US Foreclosures Jump in Third Quarter: Regulators". The link is here.

The next item for you today is a 7 minute 11 second interview with Jim Rickards over at cnbc.com's 'Squawk Box'. This interview is about the yuan, the dollar… and the bail out of Europe. As you are already aware, I have all the time in the world for whatever Jim has to say on any subject… and this interview is no exception. I thank Casey Research's own Bud Conrad for bringing this story to my attention. The link is here.

This next story is one that I was saving for the weekend, but since this is most likely my last column before the new year, here is a very depressing [but probably very true] essay that was sent to me by reader Roy Stephens about what may lie ahead for the citizens of the U.S.A. It's headlined "2011: A Brave New Dystopia"… and is posted over at truthdig.com… and the link is here.

The next two stories are courtesy of Florida reader Donna Badach. The first one is headlined "CFTC Asked Not to Make Market Manipulation Regs Cumbersome". Three of the U.S. largest trade groups representing the derivatives industry have said to the Commodity Futures Trading Commission that it needs to be a lot more lenient on how it will monitor market manipulation when it implements its greater authority under the Dodd-Frank financial reform legislation. Lenient? All these guys belong in jail. The story is linked here.

Donna's last contribution is another CNBC offering. This one is headlined "Justice Department Seeks Tougher CFTC and SEC Rules". Now the Justice Department is involved. I wonder how that will all turn out. The link to the story is here.

I mentioned this last story to Ted Butler yesterday afternoon… and he pointed out his attempt of 21 years ago to involve then-Attorney General Thornburgh in the silver manipulation problem… with no results. Ted points out in the first paragraph of this letter than he had already spent three years trying "to expose and eliminate, through the proper channels, a massive fraud and manipulation in one of our leading commodity markets." The letter is dated April 25, 1989… long before the Internet was in common use.

Jeffrey Christian, the grand poobah over at the CPM Group, posted this letter as a sort of joke on his website. I'm sure that Jeffrey won't be amused when he sees that his attempt to stick a shiv in Theodore Butler has backfired… and will probably pull the letter… so I suggest you read it as soon as you can before that happens. As soon as you begin reading it, you'll discover that not much has changed in the 21 years since Ted typed it. The link is here.

Here's a gold-related story that reader 'David in California' admitted he stole from Kitco. It's filed from Mumbai… posted at the commodityonline.comwebsite… and is headlined "Gold coins in India are sold like hot cakes". It's a handful of short paragraphs… and the link is here.

The next story is a rather longish read that was posted in the December 29th edition of Newsweek of all places. It showed up in a GATA release yesterday… and is headlined "Everything Gold Is New Again". The author, Shayne Mcguire, has been featured in this column several times over the last year or so… and his was one of the first U.S. pension funds to buy gold. McGuire is the head of global research and manages the $500 million GBI Gold Fund for Teacher Retirement System of Texas, one of the world’s largest pension funds. It's definitely worth the read… and the link is here.

Lastly today is a blog from King World News… and I just stole Chris Powell's preamble and the link. GoldMoney founder, Free Gold Money Reportpublisher, and GATA consultant James Turk told King World News that the ascent of gold and silver even at the end of the year, when the market-rigging shorts most want to suppress prices to disparage the benchmark values of the precious metals, signifies that the shorts are losing control. That's the headline on an excerpt of Turk's interview — "Gold and Silver Shorts Are Losing Control" — and the link is here.

¤ THE FUNNIES

¤ THE WRAP

Along with little price activity… there wasn't big volume on Wednesday, either… certainly far less than on Tuesday. Gold volume, net of all spreads, was only around 76,000 contracts… and silver's volume was 30,000 net.

The big increases in open interest that I feared would materialize from Tuesday's trading came to pass just as I thought they would. Open interest in gold soared by 11,337 contracts… while silver's o.i. was up a real chunky 4,291 contracts. Maybe JPMorgan and the boys weren't covering like I assumed they were? Ted and I discussed that possibility.

But, after an e-mail exchange with Carl Loeb yesterday, Ted sent me the following… "The mystery of the big increase in open interest in silver [and gold] on Tuesday may be explained by the option exercises yesterday. I forgot about them until Carl suggested that [that] might be the answer and I think he's right. Certainly, the number of call options exercised yesterday [shown in Wednesday's daily bulletin on options] shows about the same number of calls exercised in each, to the increase in futures open interest."

In a nutshell, it was options expiry in both gold and silver on Tuesday… and a lot of in-the-money call options got converted into futures contracts. This drives up the open interest… but has no effect on the price because the futures contracts were at strike prices below the spot price.

What's really interesting about this, is… who are all these long option holders that switched over to futures contracts? Since it's the buyer of the call option that has the right to convert his option to a futures contract, it will also be interesting to see who the unlucky short holder are that got dragged along [probably kicking and screaming] on the short side of this futures contract. Was it a tech fund… a bullion bank? We won't know that until Monday's Commitment of Traders report… along with the release of the January Bank Participation Report.

It's also impossible to tell whether this is a positive or a negative. But, if I had to bet ten bucks, I'd say it's very bullish… however, the truth of the matter is that we won't have any indication of which it is, until Monday.

In Far East trading earlier today, there was nothing much happening price wise that was worth noting. But now that London is open, things are looking somewhat more interesting… as silver is sitting at $30.90 spot [up 30 cents] as I write this paragraph at 4:54 a.m. Eastern time. Gold is up a couple of bucks. There's no volume in gold worthy of the name… and silver's volume is pretty chunky by comparison.

Whether or not this is my last column of the year is irrelevant at this point… as I must stop and express my gratitude to you as a reader for spending the time every day to read what I have to say. I must also extend gratitude to those readers whose continuous contributions have added to the richness of this column. I am not understating the fact that, without them, this column would be only a shadow of what it currently is.

So I doff my cap to my regular contributors… U.D., G.G., Washington state reader S.A., Swiss reader G.B., Russian reader Alex Lvov, Australian reader Wesley Legrand… plus Australia's Nick Laird for all his great charts over the year. I also thank Ken Metcalfe, Scott Pluschau, 'David from California', Florida reader Donna Badach… and where would I be [as one reader kindly pointed out] if Roy Stephens wasn't around? A special thanks to you, Roy.

This column would also be greatly diminished if I couldn't fall back on the writings and preambles of my friend Chris Powell, GATA's secretary treasurer, whose extensive work has graced this column virtually every day without fail.

And last, but certainly not least, is my friend Ted Butler. As you know from what you've read earlier in this column… and in other columns over the years… Ted was pounding at the gates of the silver price manipulation scheme long before any of us even knew what the Internet was… or knew a thing about silver… other than what we'd heard about on the Lone Ranger. It is his fight in silver [joined in 1999 by GATA in gold] that has taken us to this point in history.

And don't kid yourself, dear reader… this is history in the making. They will be writing about the big rigs in the silver and gold markets for centuries to come. We should all be grateful to be part of what will be one of the greatest financial events in history.

And, behind every column that I write, stands a small group of people in Stowe, Vermont that keep me [and this column] on the straight and narrow. This would include Dody Day, Veronica Charette… and Clara Rosenthal. But my biggest thanks of all goes to a young lady named Juli Placek, who drags herself out of a nice warm cozy bed every weekday morning at 4:45 a.m. Eastern time, to ensure that this column is posted before most North American readers are up and about.

2010 was a hell of year… but it's going to be 2011 that goes down in the history books.